Seminar: Monetary and Fiscal Policy Design at the Zero Lower Bound - Evidence from the Lab

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Isabelle Salle (UvA)

Discussant: Jasper Lukkezen (CPB)

Language: English

Registration:  Please register here

Abstract subject:
The global economic crisis of 2007-8 has pushed many advanced economies into a liquidity trap. We design a laboratory experiment on the effectiveness of policy measures to avoid expectations driven liquidity traps. Monetary policy alone is not sufficient to avoid liquidity traps, even if it preventively cuts the interest rate when inflation falls below a threshold. However, monetary policy augmented with a fiscal switching rule succeeds in escaping liquidity trap episodes. We also measure larger-than-unity fiscal multipliers when monetary policy is constrained by the zero lower bound. Experimental results in different treatments are well explained by adaptive learning.

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